Nifty Futures Trading

[uasish]

So what ,very few can say that he/she has a perfect set-up with 80 % wining probabilty.If you get few more & we can trade that profitably then atleast that set-up would be a Gr8 contribution to this forum.

 

[praveen taneja]

So what ,very few can say that he/she has a perfect set-up with 80 % wining probabilty.If you get few more & we can trade that profitably then atleast that set-up would be a Gr8 contribution to this forum.

true sir but while following u i feel guilt n iferiority complex too instead of following u people want to trade like u n tell that it is bounce level etc but all is going above my head till now .No doubt i start earning while following u n applying on options i can enter n exit n take 10-12 Rs in a lot but sirrrr i want to do trade also not being labeled as copy master

 

[piyush08]

czar i am not sure , but nif future prem. is totally depend on prem of underlyings of nifty , checked ril , its prem is 24 rs for 75 size lot , checked ongc too..

No, nifty futures premium is not dependant on the premium of its constituents. By that logic, when NF trades at a discount, all its constituents should be trading at a discount, or atleast the weighted avg of their premium/discounts should be a net discount, but that is not the case most of the time. Only in time of very heavy selling pressure do individual stock futures trade at a discount, or when a dividend will be declared, it prices in that dividend.

My guess is that the reason why Oct NF were trading at such large premium was that mostly longs rolled over & this time a large no of shorts did not roll over. It could also be that today mkt was very weak despite good cues from european mkts due to expiry, & ppl expect a bounce tmrw. Also, ppl could hav anticipated a vote on the bailout plan which will happen tonite.

This is also the reason why the price of the 3900 put has not budged despite nifty falling today. I guess the IV's on puts of all strikes would have reduced today, & IV's on calls would have gone up. I just checked, for example, 4200 put ended at 199 today, up just 3 rs from yesterdays closing of 196. The IV on this has dropped from 39 to 34. Whereas the 4200 call ended at 152, down just 3 rs from 155. Its IV has increased to 35 from 29 yesterday. This simply tells u that there is more probability of mkts going up to probability of mkts going down tmrw, is much better today than it was yesterday. The movement in IV's reflect this, which ofcourse comes about simply from more demand for calls & less for that of puts.

 

[devangan123]

My guess is that the reason why Oct NF were trading at such large premium was that mostly longs rolled over & this time a large no of shorts did not roll over. It could also be that today mkt was very weak despite good cues from european mkts due to expiry, & ppl expect a bounce tmrw. Also, ppl could hav anticipated a vote on the bailout plan which will happen tonite.

Yes very Right guess this was the main reason of high premium every where today

 

[orderflow13]

No, nifty futures premium is not dependant on the premium of its constituents. By that logic, when NF trades at a discount, all its constituents should be trading at a discount, or atleast the weighted avg of their premium/discounts should be a net discount, but that is not the case most of the time. Only in time of very heavy selling pressure do individual stock futures trade at a discount, or when a dividend will be declared, it prices in that dividend.

My guess is that the reason why Oct NF were trading at such large premium was that mostly longs rolled over & this time a large no of shorts did not roll over. It could also be that today mkt was very weak despite good cues from european mkts due to expiry, & ppl expect a bounce tmrw. Also, ppl could hav anticipated a vote on the bailout plan which will happen tonite.

This is also the reason why the price of the 3900 put has not budged despite nifty falling today. I guess the IV's on puts of all strikes would have reduced today, & IV's on calls would have gone up. I just checked, for example, 4200 put ended at 199 today, up just 3 rs from yesterdays closing of 196. The IV on this has dropped from 39 to 34. Whereas the 4200 call ended at 152, down just 3 rs from 155. Its IV has increased to 35 from 29 yesterday. This simply tells u that there is more probability of mkts going up to probability of mkts going down tmrw, is much better today than it was yesterday. The movement in IV's reflect this, which ofcourse comes about simply from more demand for calls & less for that of puts.

thankx for taking time and explain in details...
Alex

 

[parttimetrader]

The simplest reason is the cost of carry. Liquidity conditions in the market are VERY tight. Call money was at 14% recently and prime lending rates are through the roof. Banks are unwilling to lend, and capital is very dear. Liquid money market funds were yielding 10%!!! This is why the rollover premium is huge. But the simple takeaway is the liquidity premium and high market interest rates currently prevailing. If long, the cost of carry is the cost of interest paid on a margin account. For most investments, the cost of carry generally refers to the risk-free interest rate that could be earned by investing currency in a theoretically safe investment vehicle such as a money market account minus any future cash-flows that are expected from holding an equivalent instrument with the same risk (generally expressed in percentage terms and called the convenience yield).

As I just told you, interest rates in the market are very high, and thus the futures price is very high. It should not be surprising.

The cost of carry model expresses the forward price (or, as an approximation, the futures price) as a function of the spot price and the cost of carry.

F = S * [e ^ (r+s-c)t], where F is the forward price, S is the spot price, e is the base of the natural logarithms, r is the risk-free interest rate, s is the storage cost, c is the convenience yield, and t is the time to delivery of the forward contract (expressed as a fraction of 1 year).

Spot Nifty (S) = 4110
e = 2.718
r = 14%
s, c = 0% (assumed)
t = 1/12

Thus, F = 4110 * (2.718 ^ ((0.14+0-0) * (1/12)), or 4158, which is almost EXACTLY what it closed at.

Hope this helps.

 

[orderflow13]

The simplest reason is the cost of carry. Liquidity conditions in the market are VERY tight. Call money was at 14% recently and prime lending rates are through the roof. Banks are unwilling to lend, and capital is very dear. Liquid money market funds were yielding 10%!!! This is why the rollover premium is huge. But the simple takeaway is the liquidity premium and high market interest rates currently prevailing. If long, the cost of carry is the cost of interest paid on a margin account. For most investments, the cost of carry generally refers to the risk-free interest rate that could be earned by investing currency in a theoretically safe investment vehicle such as a money market account minus any future cash-flows that are expected from holding an equivalent instrument with the same risk (generally expressed in percentage terms and called the convenience yield).

As I just told you, interest rates in the market are very high, and thus the futures price is very high. It should not be surprising.

The cost of carry model expresses the forward price (or, as an approximation, the futures price) as a function of the spot price and the cost of carry.

F = S * [e ^ (r+s-c)t], where F is the forward price, S is the spot price, e is the base of the natural logarithms, r is the risk-free interest rate, s is the storage cost, c is the convenience yield, and t is the time to delivery of the forward contract (expressed as a fraction of 1 year).

Spot Nifty (S) = 4110
e = 2.718
r = 14%
s, c = 0% (assumed)
t = 1/12

Thus, F = 4110 * (2.718 ^ ((0.14+0-0) * (1/12)), or 4158, which is almost EXACTLY what it closed at.

Hope this helps.

Wow what a post Asish
loads of thanks for everything and the formula to calculate cost of carry.
In laymen terms, is this call money u referring is the same that banks lend to the other banks on overnight basis ?
and is that 14 % of call market is the highest rate in 6 years ?
As having a feeling that in formula, 'r' is the only relative figure and other things are constant ( spot will be vary but we calculating premium on it ) .
so can we assume that looking at call money rate we might get general idea of what cost of carry gonna be ?( i am trying to be a lazy sorry but want to skip formula part each and every time )
or i am very grossly mistaking somewhere ?and i have to go to the formula
plz do find time to explain my confusion, it will help me further
Alex

 

[praveen taneja]

Sir all theories are beaten by daily sinking of one or another bank in US.today there is a news of drowning of WASHINGTON MUTUAL .The largest financial institution in US impact of that SGX now at 4095 n on border of major res of 4050-4080.after that ........................

 

[uasish]

parttimetrader,has very rightly pointed to the conceptual part.

 

[milind]

West was up last night, but the east is down in the morning! Bloomberg is showing US futures down.

(Standard & Poor's 500 Index futures slid 1.2 percent in after-hours trading after U.S. Senate Banking Committee Chairman Christopher Dodd said the agreement he had reached with Republicans was undermined by a different proposal offered by a group of House Republicans led by Representative Eric Cantor. - Bloomberg)


I guess there is still lot of confusion about US bail-out plan.

For pivot levels, today I am confused if to use Oct or Sept numbers from yesterday. 60min thread thinks it should be Sep numbers. Using Oct, levels are

R2 4,231.9
R1 4,195.2
PP 4,151.1
S1 4,114.4
S2 4,070.3

I don't know if its self-fulfilling prophesy, but those levels seem to stand out when one looks at the chart at end of the day.

-- Milind